What is a second charge mortgage and when might I need one?

Full answer

Second charge mortgages let homeowners release additional borrowing secured against their property while keeping their existing first mortgage completely separate and unchanged. **How it differs from remortgaging or further advances** A second charge mortgage is an entirely separate loan and lender from your existing mortgage, secured with a legal charge that ranks BEHIND your first mortgage lender's charge -- if the property were ever repossessed and sold, the first charge lender is repaid in full before anything goes to the second charge lender. This differs from a 'further advance', which is additional borrowing from your EXISTING first mortgage lender on the same charge. **Why someone might choose a second charge over remortgaging** If your existing mortgage has a low fixed rate you would lose by remortgaging, or carries a significant Early Repayment Charge that would make breaking the deal expensive, a second charge mortgage lets you raise additional funds (for example, for home improvements, debt consolidation, or a deposit for another property) without disturbing your existing deal at all. **Worked example** Someone is two years into a 5-year fix at a very competitive rate with a large ERC, but wants to release £30,000 for an extension. Remortgaging early would trigger a substantial ERC and lose the competitive rate. Taking a second charge mortgage for £30,000 keeps the existing first mortgage completely untouched while providing the extra funds needed, usually at a somewhat higher interest rate than the first mortgage. **Cost considerations** Second charge mortgage rates are typically higher than first charge mortgage rates, reflecting the lender's subordinate (second) position and higher risk, so the decision should weigh the cost of the second charge against the combined cost of remortgaging (new rate plus any ERC) for the full amount instead. **Affordability and risk** As with any secured lending, missing payments on a second charge mortgage puts your home at risk, in addition to whatever risk your first mortgage already carries, so total secured borrowing (first plus second charge) needs to remain genuinely affordable. **Practical tip** Compare the total cost of a second charge mortgage against remortgaging the whole amount (factoring in any ERC on your existing deal) using a whole-of-market broker, since which option is cheaper depends heavily on your specific ERC, remaining deal term, and the rates available on each route.

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• Will I pay an early repayment charge if I remortgage before my deal ends?